Study: Pollution Credits Can Boost Virginia Farm Profits

Going Beyond Bay Cleanup Goals Can Add Revenue To Farm Bottom Line

(RICHMOND, VA) – A new economic cost-benefit analysis of pollution credits proposed in pending federal legislation shows that a typical Virginia crop farm could realize more than $8,000 in new profits each year by exceeding Chesapeake Bay cleanup goals and selling its extra clean water credits.

The analysis, the second done by the World Resources Institute (WRI) an international leader in market-based environmental programs, examines the likely impacts of a Bay-wide pollution credit program on Virginia farms. It determined that the potential revenue for many Virginia farmers participating in such a program would exceed the cost of meeting and exceeding Bay cleanup standards.

"The WRI analysis again demonstrates that restoring the Chesapeake Bay and sustaining our farm economy can go hand in hand," said Chesapeake Bay Foundation (CBF) Virginia Executive Director Ann Jennings. "By allowing for a market-based approach to clean water, many farmers in the Commonwealth will find it financially profitable to exceed clean water goals and sell pollution credits. It’s another reason why it’s critical that Congress approve the Chesapeake Clean Water Act."

A Bay-wide pollution credit program is among the proposals of the Chesapeake Clean Water Act now pending in Congress. The legislation would establish a market-based, interstate pollution credit program aimed at improving water quality in local rivers, streams, and the Bay. Credit programs, which have been successful in other arenas, allow participants that can reduce pollution below baseline levels to sell their surplus reductions, or credits, to others facing higher pollution-reduction costs.

"Nutrient trading is a very effective, market-based approach to reducing pollution, often creating a win-win benefit for participants," said L. Preston Bryant Jr., senior vice president for infrastructure and economic development at McGuireWoods Consulting and former Virginia Secretary of Natural Resources.

WRI performed an earlier study late last year that determined a pollution credit program could earn Virginia farmers as a group as much as $50 million annually, in a fully mature regional trading program. The latest study focuses on the economic costs and benefits to a typical Virginia farm.

Because reducing nitrogen and phosphorus pollution from farms is much less expensive than reducing pollution from sewage treatment plants or urban and suburban areas, Bay region farmers are in an optimal position to sell credits in a nutrient credit program. WRI conservatively estimates that, depending on the type of farm, its location, and the variety of clean water practices used, credits could bring in from $300 to $8,000 in additional annual profit for a representative 200-acre farm in Virginia. The income would be over and above the costs of achieving and maintaining baseline Bay cleanup goals and the expense of implementing additional practices to generate clean water credits.

Practices used by farmers to reduce runoff pollution to achieve or exceed baseline Bay goals might include planting streamside buffers of grasses and trees, fencing livestock from creeks, using no-till techniques, planting winter cover crops, and following nutrient (fertilizer) management plans. The costs of these practices vary, but often they are shared with government; typically government funds 75 percent and Virginia farmers 25 percent.

The costs of achieving the baseline and the revenues that can be generated depend on what type of farming is occurring. Generally speaking, pasture land has fewer options for generating pollution credits, fewer pollution reduction factors, and more limited revenue potential than cropland. The amount of nitrogen pollution reduced by a practice also will vary by farm location due to differences in proximity to the Bay, hydrology, and other factors.

"The results of this analysis bode well for the future of agriculture and the Bay," said Cy Jones, WRI Senior Associate. "Our task now is to ensure that these benefits are realized to their fullest potential in a soundly-designed Bay-wide nutrient trading program."

"Virginia currently has a successful pollution trading program that results in cleaner water and reduced costs," Bryant added. "As the WRI study demonstrates, farmers in Virginia could especially benefit from a regional trading program, boosting their income and achieving the pollution reductions necessary for clean rivers and a healthy Chesapeake Bay. This is clear evidence that we can have clean water and a robust farm economy."